SEBI and Foreign Institutional Investors (FIIs) In India

SEBI announced its guidelines for FIIs registration and their operations in India in 1992 in February, 1993 SEBI has granted registration to 12 FIIs for investing in the Indian Stock market. At the end of 1996, 97, 439 FIIs were registered with SEBI. SEBI permitted registered FIIs to invest in all securities traded on the primary and secondary markets including: equity, other securities and instruments of companies listed on stock exchanges including OTCEI.

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According to the 1995 regulation, no person can buy or sell or otherwise deal in securities as a foreign institutional investor unless he holds a certificate granted by SEBI.

The certificate would be given to FIIs only after considering—

1. The applicant’s track record, professional record, professional competence, financial soundness, experience, general reputation of fairness and integrity.

2. Whether the applicant is regulated by an appropriate foreign regulatory authority.

3. Whether the applicant has been granted permission under the provisions of FERA Act 1973, for making investments in India as FII.

4. Whether the applicant is

(a) An institution established or incorporated outsides Indian as Pension Fund or Mutual Fund or Investment Trust, or

(b) An Asset Management Company or Nominee Company or Bank or Institutional Portfolio Manager, established or incorporated outside India and proposing to make investment in India on behalf of broad based funds or

(c) A Trustee or Power of Attorney holder, incorporated or established outside India and proposing to make investments in India on behalf of broad based funds.

The certificate is valid for a period of 5 years from the date of its grant. Provisions are made for the renewal of the certificate. FIIs are allowed to place orders directly. Separate codes are given to FIIs and stock exchange have to use the code number. The code number have to be approved by SEBI.

All the transactions carried out on behalf to FIIs have to be on delivery basis. In other words, the registered FIIs should not engage in short selling and have to take delivery of all purchase and give delivery of sold securities .

To case the inflow of foreign capital, amendments have been made in the regulations regarding the FIIs investment. They are given below.

1. SEBI exempted FIIs to attach copy of RBI approved with market lot where shares are sold and a custodian signed the transfer deed on their behalf.

2. FIIs individual limit on investment in a company was raised from 5 per cent to 10 per cent. Further, they have been allowed to unlisted stock of any company. The FIIs list has also been increased.

3. SEBI (FIIs) Regulations 1995, have been changed to allow the FIIs to invest not only in the equity but also in debt instruments of corporate bodies. FIIs were allowed to invest up to 100 per cent of the funds in debt instruments of Indian companies through 100 per cent dedicated debt funds from January 15, 1997.

4. SEBI amended SEBI (FIIs) Regulations 1997, to make it mandatory for FIIs, having securities of Rs. 10 crore of these as on own interest.

5. In June 1998, SEBI permitted

(a) FIIs to invest in unlisted companies through the 100% debt route and to tender their serenities directly in responses to an open offer made in terms of the SEBI regulations 1997.

(b) SEBI simplified the process of approval of Sub-accounts of registered FIIs.

(c) SEBI permitted FIIs to buy derivative contracts, which are traded on the stock exchanges.

6. The aggregate investment of FII/NRI/OCB has been raised to 30 per cent of the equity of the company by the union budget for 1997–98. The Finance Minister in his budget speech in February 2000 announced of this limit to 40 per cent.